Exhibit 10.5
FANLINK NETWORKS, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
December 5, 2000
FANLINK NETWORKS, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of the 5th day of December, 2000, by and among Fanlink
Networks, Inc. a Delaware corporation (the "Company"), Planet Zanett Corporate
Incubator, Inc., a Delaware corporation ("Planet Zanett"), and certain other
investors, severally and not jointly, listed on Schedule A hereto. Planet Zanett
and each other investor are collectively referred to herein as the "Investors"
and each, as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series A Convertible Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the First Tranche Closing (as defined below) the Amended
and Restated Certificate of Incorporation in the form attached hereto as Exhibit
A (respectively, the "Restated Certificate").
(b) On or prior to the First Tranche Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series A Convertible Preferred Stock of the Company, par value $0.001 per share
(the "Series A Preferred"), and (ii) the issuance and reservation of the shares
of common stock of the Company, par value $0.001 per share ("Common Stock") to
be issued upon the conversion of the Series A Preferred. The Series A Preferred
shall have the rights, preferences, privileges and restrictions set forth in the
Restated Certificate.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase, and the Company agrees
to sell and issue to each Investor:
(i) at the First Tranche Closing, 33.5% of the number of
shares of the Series A Preferred set forth opposite such Investor's name on
Schedule A hereto, at a purchase price of $1.03298 per share;
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(ii) at the Second Tranche Closing (as such term is defined in
this Agreement), provided that (A) the Company has achieved, on or before
February 5, 2001, the milestones set forth in Schedule C relating to such Second
Tranche Closing as certified by the Company's Chief Executive Officer and
approved by the Board of Directors of the Company (the "Second Tranche
Milestone"), (B) no material adverse change in the Company's financial condition
or business prospects has occurred since the date of the First Tranche Closing,
(C) the Investors shall have completed and been satisfied with the results of
legal, business, environmental, financial insurance and accounting due diligence
review of the Company concerning the period between the date of the First
Tranche Closing Date and the date of the Second Tranche Closing, and (D) the
Company elects, at its sole discretion, to accept an investment from the
Investors at the Second Tranche Closing, 33.7% of the number of shares of the
Series A Preferred set forth opposite such Investor's name on Schedule A hereto,
at a purchase price of $1.03298 per share; and
(iii) at the Final Tranche Closing (as such term is defined in
this Agreement), provided that (A) the Company has achieved, on or before April
5, 2001, the milestones set forth in Schedule C relating to such Final Tranche
Closing as certified by the Company's Chief Executive Officer and approved by
the Board of Directors of the Company (the "Final Tranche Milestone"), (B) no
material adverse change in the Company's financial condition or business
prospects has occurred since the date of the First Tranche Closing, (C) the
Investors shall have completed and been satisfied with the results of legal,
business, environmental, financial insurance and accounting due diligence review
of the Company concerning the period between the date of the Second Tranche
Closing and the date of the Final Tranche Closing, and (D) the Company elects,
at its sole discretion, to accept an investment from the Investors at the Final
Tranche Closing, 32.8% of the number of shares of the Series A Preferred set
forth opposite such Investor's name on Schedule A hereto, at a purchase price of
$1.03298 per share.
(d) Notwithstanding the foregoing conditions to the purchase of
Series A Preferred, any Investor may elect to purchase, on any Closing Date, the
total number of shares of Series A Preferred set forth opposite such Investors
name on Schedule A hereto.
(e) Notwithstanding the foregoing, the Company, at its sole
discretion, shall have the right to accept or reject any investment from the
Investors at the Second Tranche Closing and the Final Tranche Closing.
1.2 First Tranche Closing. The purchase and sale of 33.5% of the Series A
Preferred shall take place on or about December 1 2000, at the offices of Kelley
Drye & Warren LLP ("KDW"), 101 Park Avenue, New York, New York 10178 (which time
and place are designated as the "First Tranche Closing"). At the First Tranche
Closing, the Company shall deliver to each Investor certificates representing
the Series A Preferred that such Investor is purchasing against payment of the
purchase price therefor by check or wire transfer.
1.3 Second Tranche Closing. Provided that on or before the date that is
sixty (60) days after the date of the First Tranche Closing, each of the
conditions set forth in Section 1.1(c)(ii) and Article
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4 hereof to the obligations of the Investors has been satisfied by the Company
or waived by the Investors, the purchase and sale of 33.7% of the Series A
Preferred shall take place at the offices of KDW on or before the date that is
seventy-five (75) days after the First Tranche Closing (which time and place are
designated as the "Second Tranche Closing"). At the Second Tranche Closing, the
Company shall deliver to each Investor certificates representing the Series A
Preferred that such Investor is purchasing against payment of the purchase price
therefor by check or wire transfer.
1.4 Final Tranche Closing. Provided that on or before the date that is one
hundred twenty (120) days after the date of the First Tranche Closing, each of
the conditions set forth in Section 1.1(c)(iii) and Article 4 hereof to the
obligations of the Investors, has been satisfied by the Company or waived by the
Investors, the purchase and sale of 32.8% of the Series A Preferred shall take
place at the offices of KDW on or before the date that is one hundred
thirty-five (135) days after the date of the First Tranche Closing (which time
and place are designated as the "Final Tranche Closing"). At the Final Tranche
Closing, the Company shall deliver to each Investor certificates representing
the Series A Preferred that such Investor is purchasing against payment of the
purchase price therefor by check or wire transfer.
1.5 Additional Closings. Notwithstanding any provision of this Agreement,
at additional closings (the "Additional Closings") to be held on or before
December 31, 2000, the Company may issue up to 3,547,890 additional shares of
such Series A Preferred. Such issuance shall be on substantially the same terms
and conditions as herein set forth (including, but not limited to, the same
purchase price per share) to certain additional purchasers listed on addenda to
Schedule A hereto. Such additional purchasers shall add their signatures to the
signature pages hereto, shall purchase said additional shares by check or wire
transfer payable to the order of the Company and, subject to the terms and
conditions of this Agreement (other than this provision for Additional Closings)
shall be included in the term "Investors" as used herein.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions attached hereto as Schedule B (the "Schedule of Exceptions")
furnished to each Investor, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify could reasonably be expected to
have a material adverse effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
Company consists, or will consist immediately prior to the First Tranche
Closing, of:
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(a) Series A Preferred Stock. 5,000,000 shares of Preferred Stock,
of which 5,000,000 shares have been designated Series A Preferred Stock, none of
which are issued and outstanding, and up to 5,000,000 of which may be sold
pursuant to this Agreement. The rights, privileges and preferences of the Series
A Preferred Stock will be as stated in the Restated Certificate.
(b) Common Stock. 50,000,000 shares of Common Stock, of which
9,516,925 shares have been issued and are outstanding, in addition to which
2,100,000 shares are reserved for issuance pursuant to grants of options to be
issued by the Company.
(c) The outstanding shares of Common Stock are owned by the
stockholders and in the numbers specified in Exhibit C hereto.
(d) The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act"), and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the Series A
Preferred to be issued pursuant to this Agreement, (B) shares of Common Stock
which have been reserved for purchase upon exercise of options granted or to be
granted to employees, management and other service providers pursuant to the
Company's 2000 Stock Option/Stock Issuance Plan (the "2000 Stock Option Plan")
and (C) 57,500 shares of Common Stock reserved for issuance pursuant to warrants
granted to Ivan Parra, 20,000 shares of Common Stock reserved for issuance
pursuant to warrants granted to Mike Diehr and the rights to purchase shares of
the Series A Preferred under this Agreement at the Second Tranche Closing and
the Final Tranche Closing, there are not outstanding any options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock. The
Company is not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control, directly
or indirectly, any interest in any other corporation, association, or other
business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Stockholders Agreement (as defined in this
Agreement) and the Investors' Rights Agreement (as defined in this Agreement),
the performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery of
the Series A Preferred being sold hereunder and the Common Stock issuable upon
conversion of the
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Series A Preferred has been taken or will be taken prior to the First Tranche
Closing, and this Agreement, the Stockholders Agreement and the Investors'
Rights Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Preferred Stock and Common Stock. The Series A
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Stockholders Agreement, and
the Investors' Rights Agreement and under applicable state and federal
securities laws. The Common Stock issuable upon conversion of the Series A
Preferred has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Certificate, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Stockholders Agreement and the Investors' Rights Agreement and under applicable
state and federal securities laws.
2.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except (i) the filing of the Restated Certificate with the
Secretary of State of Delaware; and (ii) such other filings as may be required
by state law.
2.7 Offering. Subject in part to the truth and accuracy of each Investor's
representations set forth in Section 3 of this Agreement, the offer, sale and
issuance of the Series A Preferred as contemplated by this Agreement is exempt
from the registration requirements of any applicable state and federal
securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
2.8 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Stockholders Agreement or the
Investors' Rights Agreement, or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
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2.9 Compliance with Other Instruments. The Company is not in violation or
default in any material respect of any provision of its Restated Certificate or
its By-laws, which are attached hereto as Exhibit A and Exhibit D, respectively,
or in any material respect of any mortgage, indenture, agreement, instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, or of any provision of any federal, state or local statute, rule or
regulation applicable to the Company the non-compliance with which or violation
of which would have a material adverse effect on the assets, conditions, affairs
or prospects of the Company, financially or otherwise. The execution, delivery
and performance of this Agreement, the Stockholders Agreement and the Investors'
Rights Agreement, and the consummation of the transactions contemplated hereby
and thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under or violation of any such provision, instrument, mortgage,
indenture, agreement, judgment, order, writ, decree or contract or an event that
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal
of any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.10 Agreements; Action.
(a) Except for agreements explicitly referred to herein, the
Stockholders Agreement or in the Investors' Rights Agreement, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, affiliates, or any affiliate thereof, except as such
are listed on Schedule 2.10 of the Schedule of Exceptions.
(b) Except as listed on Schedule 2.10 of the Schedule of Exceptions,
there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound that may involve obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000.
(c) Except as listed on Schedule 2.10 of the Schedule of Exceptions,
the Company has not (i) declared or paid any dividends or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or any other liabilities
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) For the purposes of Sections 2.10(b) and 2.10(c) hereof, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such Sections.
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(e) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under the Restated
Certificate or its By-laws that adversely affects its business as now conducted
or as proposed to be conducted, its properties or its financial condition.
2.11 Related-Party Transactions. No employee, officer, stockholder or
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own less than a five percent (5%) equity
interest in publicly traded companies that may compete with the Company. No
member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any contract with the Company.
2.12 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggy-back registration rights, to any person or entity.
2.13 Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein, the Restated
Certificate and By-laws of the Company are in the form previously provided to
the Investors.
2.14 Material Liabilities. The Company has no material liability or
obligation, absolute or contingent in excess of $50,000. The Company's
liabilities and obligations consist solely of (i) obligations and liabilities
incurred after the date of incorporation in the ordinary course of business that
are not material, individually or in the aggregate, and (ii) obligations under
contracts made in the ordinary course of business and that would not be required
to be reflected in financial statements prepared in accordance with generally
accepted accounting principles.
2.15 Employee Benefit Plans. The Company does not have any employee
benefit, retirement or welfare plan, including any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974.
2.16 Brokers. Except as listed on Schedule 2.16 of the Schedule of
Exceptions, the Company has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions contemplated by
this Agreement.
2.17 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
(i) such encumbrances and liens that arise in the ordinary course of business
and do not materially impair the Company's ownership or use of such property or
assets; and (ii) statutory liens for payment of current taxes that are not yet
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delinquent. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances. Except as listed
on Schedule 2.17, no assets or property necessary for the conduct of the
Company's business as now conducted and as proposed to be conducted are owned by
Skynear Technologies, LLC, a Delaware limited liability company (the "LLC"), and
such assets as are listed on Schedule 2.17 shall be transferred to the Company
upon dissolution of the LLC in accordance with Section 4.3 of this Agreement.
2.18 Securities Laws. Based in part upon the representations of the
Investors contained in Section 3 hereof, no consent, authorization, approval,
permit or order of or filing with any governmental authority is required under
current applicable laws and regulations in connection with the execution and
delivery of this Agreement or the offer, issuance, sale or delivery of the
Series A Preferred, other than the filing of Form D in accordance with
Regulation D under the Act and the qualification thereof under applicable state
securities laws, which qualification has been or will be effected as a condition
of these sales. The Company has not, directly or through an agent, offered the
Series A Preferred or any similar securities for sale to, or solicited any
offers to acquire such securities from, persons other than the Investors and
other "accredited investors" as defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Act"). Under the
circumstances contemplated by this Agreement and assuming the accuracy of the
representations of the Investors, the offer, issuance, sale and delivery of the
Series A Preferred Stock will not, under current laws and regulations, require
compliance with the prospectus delivery or registration requirements of the Act.
2.19 Disclosure. The Company has not withheld from the Investors any
material facts relating to the assets, business, operations, condition
(financial or otherwise) or prospects of the Company. No representation or
warranty in this Agreement (including the exhibits and schedules hereto) or in
any certificate furnished or to be furnished to any Investor pursuant hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated herein or therein or
necessary to make the statements herein or therein, in light of the
circumstances under which they are made, not misleading.
2.20 Employees. To the best of the Company's knowledge, no strike, labor
dispute or union organizing activities are pending or threatened. No employees
belong to a union or collective bargaining unit. Except as described in Schedule
2.20 of the Schedule of Exceptions, to the best of the Company's knowledge, no
officer of the Company or employee of the Company whose annual compensation is
in excess of $50,000 has any plans to terminate his or her employment with the
Company. The Company has complied in all material respects with all laws
relating to the employment of labor, including provisions relating to wages,
hours, equal opportunity, collective bargaining and payment of Social Security
and other taxes, with respect to which the failure to comply could reasonably be
expected to have a material adverse effect on the assets, condition, affairs or
prospects of the Company, and the Company has not encountered any material labor
difficulties. The Company does not have any worker's compensation liabilities.
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2.21 Lock-up Agreements. The Company has obtained from all of the holders
of its Common Stock and options to purchase Common Stock lock-up agreements with
the Company pursuant to which such holders will agree, if so requested by the
Company or any underwriter's representative in connection with a initial public
offering of the Company's Common Stock, not to sell or otherwise transfer any
securities of the Company during a period of up to one hundred eighty (180) days
following the effective date of the registration statement in connection with
such offering.
2.22 Financial Statements; No Material Adverse Changes. The balance sheets
and stockholders' equity of the Company as of December 31, 1999, and the
statements of income and cash flow of the Company, for the year ended December
31, 1999, copies of which have been furnished to the Investors, or have been
made available to the Investors, in each case, present fairly in all material
respect the financial position of the Company at such dates and the results of
their operations and cash flows for the periods then ended, in conformity with
generally accepted accounting principles, consistently applied ("GAAP"). Since
December 31, 1999, there has not been any event or condition of any type that
has materially and adversely affected the business, properties, prospects or
financial condition of the Company.
2.23 Permits. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it. The Company believes it can obtain, without undue burden or
expense, each approval necessary for the conduct of its business as planned to
be conducted. The Company is not in default under any of such franchises,
permits, licenses or other similar authority.
2.24 Marketing Rights. Except pursuant to contracts listed on Schedule
2.24 of the Schedule of Exceptions, the Company has not granted rights to
license, market or sell its products to any other person and is not bound by any
agreement that affects the Company's right to license, market or sell its
products.
2.25 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports as required by law. Such returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company included in the provision for accrued liabilities in the
Company's financial statements is adequate for taxes due or accrued as of the
date thereof. The Company has not elected pursuant to the Internal Revenue Code
of 1986, as amended ("Code"), to be treated as an S corporation pursuant to
section 341(f) of the Code, nor has it made any other elections pursuant to the
Code that would have a material effect on the business, properties, prospects or
financial condition of the Company. The Company has never had any tax deficiency
proposed or assessed against it and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax or governmental
charge. None of the Company's federal income tax returns and none of its state
income or franchise tax or sales or use tax returns has ever been audited by
governmental authorities. The Company has made adequate provisions on its books
of account for all taxes, assessments and governmental charges with respect to
its business, properties and operations for such period. The Company has
withheld or collected from each payment made
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to each of its employees, the amount of all taxes, including, but not limited
to, federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
2.26 Intellectual Property. Except as otherwise disclosed in Schedule 2.26
of the Schedule of Exceptions, Seller is the sole and exclusive owner of all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted (collectively, the "Intellectual Property") without any conflict with
or infringement of the rights of others, and except as set forth on such
Schedule 2.26 of the Schedule of Exceptions, no contracts, permits or other
rights or licenses have been granted to others with respect to any such
intellectual property. Except as listed on Schedule 2.26 of the Schedule of
Exceptions, no Intellectual Property necessary for the conduct of the Company's
business as now conducted and as proposed to be conducted are owned by the LLC,
and such Intellectual Property as is listed on Schedule 2.26 of the Schedule of
Exceptions shall be transferred to the Company upon dissolution of the LLC in
accordance with Section 4.3 of this Agreement.
2.27 Environmental Matters. To the best of the Company's knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statue, law or regulation.
3. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to enter
into this Agreement, the Stockholders Agreement and the Investors' Rights
Agreement, and each such Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
3.2 Purchase Entirely For Own Account. This Agreement is made with such
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement, such Investor hereby confirms
that the Series A Preferred to be received by such Investor and the Common Stock
issuable upon conversion and exercise thereof (collectively, the "Securities")
will be acquired for investment for such Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that such Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have any
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contract undertaking, agreement or arrangement with any person to sell, transfer
or grant participations to such person or to any third person, with respect to
any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Series A Preferred. Such Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series A Preferred and
the business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors to
rely thereon.
3.4 Investment Experience. Such Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series A Preferred. If other than an
individual, such Investor also represents it has not been organized for the
purpose of acquiring the Series A Preferred.
3.5 Accredited Investor. Such Investor is an "accredited investor" within
the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation
D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the Securities
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering, and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, such Investor
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3, and the Investors' Rights Agreement, provided and to the extent
this Section and such agreements are then applicable, and:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have
-11-
furnished the Company with an opinion of counsel reasonably satisfactory to the
Company that such disposition will not require registration of such shares under
the Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Sections 3.7(a) and 3.7(b)
hereof, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Investor hereunder.
(d) Nothing in this Section 3.7 is intended to prevent the holders
of the Series A Preferred from transferring shares of such Series A Preferred
Stock to affiliates and subsidiaries.
3.8 Legends. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF THE HOLDER OF SUCH
SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT TO A CERTAIN
STOCKHOLDERS AGREEMENT DATED AS OF DECEMBER 1 2000 BETWEEN FANLINK NETWORKS,
INC. AND CERTAIN HOLDERS OF ITS OUTSTANDING CAPITAL STOCK. NO SALE, TRANSFER,
ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE OR INSTRUMENT SHALL BE VALID OR EFFECTIVE UNTIL THE TERMS AND
CONDITIONS OF SUCH AGREEMENT HAVE BEEN COMPLIED WITH. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF FANLINK NETWORKS, INC." and
(b) Any legend required by the laws of any State.
3.9 Removal of Legends. Any legend endorsed on a certificate evidencing a
security shall be removed, and the Company shall issue a certificate without
such legend to the holder of such
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security, if such security is being disposed of pursuant to a registration under
the Act or pursuant to Rule 144 or any similar rule then in effect or if such
holder provides the Company with an opinion of such counsel satisfactory to the
Company to the effect that a transfer of such security may be made without such
registration. In addition, if the holder of such security delivers to the
Company an opinion of counsel that is in form and substance satisfactory to the
Company and its counsel to that effect that no subsequent transfer of such
security will require registration under the Act, the Company will promptly upon
such transfer deliver new certificates evidencing such security that do not bear
any legend.
4. Covenants and Agreements.
4.1 Key Man Insurance. The Company shall use its best efforts to purchase
by or promptly following the First Tranche Closing, and maintain in effect for a
period of not less than three (3) years following the date of this Agreement,
key man term life insurance policies upon each of Messrs. Robert Thorne and Sven
Liden, each in the amount of $1 million.
4.2 Insurance. As soon as practicable, but in no event later than ninety
(90) days after the First Tranche Closing, the Company shall purchase policies
of insurance issued by insurers of recognized responsibility insuring the
Company and its properties and business against such losses and risks, and in
such amounts as in the Company's best judgment, after advice from its insurance
broker and Planet Zanett, are acceptable for the nature and extent of such
business and its resources, and shall maintain such insurance policies in effect
for so long as the Company shall operate its business.
4.3 Dissolution of the LLC. As soon as practicable, but in no event later
than ninety (90) days after the First Tranche Closing, the Company shall
dissolve the LLC, and assign, transfer, or distribute any assets or property
listed on Schedule 2.17 of the Schedule of Exceptions, including Intellectual
Property listed on Schedule 2.26 of the Schedule of Exceptions, to the Company.
5. Conditions of Investors' Obligations at Closing. The obligations of
each Investor under Section 1 of this Agreement are subject to the fulfillment
on or before each Closing Date, as applicable, for each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent thereto:
5.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true on and as of the date of each
of the First Tranche Closing, the Second Tranche Closing and the Final Tranche
Closing, as the case may be, with the same effect as though such representations
and warranties had been made on and as of the date of such First Tranche
Closing, Second Tranche Closing and Final Tranche Closing, as the case may be.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or
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complied with by it on or before the date of such First Tranche Closing, Second
Tranche Closing and Final Tranche Closing, as the case may be.
5.3 Compliance Certificate. The President of the Company shall deliver to
each Investor at each of the First Tranche Closing, the Second Tranche Closing
and the Final Tranche Closing, as the case may be, a certificate stating that
the conditions specified in Sections 5.1, 5.2 and 5.4 have been fulfilled.
5.4 Qualifications and Consents. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the First Tranche Closing. All consents that the Company is
required to obtain from third parties to enter into the transactions
contemplated hereby shall be duly obtained and effective as of each Closing
Date.
5.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the First Tranche Closing, the
Second Tranche Closing and the Final Tranche Closing, as the case may be, and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request. This may include, without limitation, good standing certificates and
certification by the Company's and any subsidiary's Secretary regarding the
Company's and any subsidiary's Certificate of Incorporation and By-laws and
Board of Directors and Stockholders resolutions relating to this transaction.
5.6 Opinion of Company Counsel. Each Investor shall have received from
Brobeck, Phleger & Harrison, LLP, counsel to the Company, an opinion, dated as
of the First Tranche Closing, in the form attached hereto as Exhibit E, and
shall provide an opinion certifying as to the continuing validity of such
opinion dated as of each of the Second Tranche Closing and the Final Tranche
Closing.
5.7 Investors' Rights Agreement. The Company, each Investor and certain
stockholders of the Company shall have entered into the Investors' Rights
Agreement, substantially in the form attached as Exhibit B (the "Investors'
Rights Agreement").
5.8 Stockholders Agreement. The Company, each Investor and certain
stockholders of the Company shall have entered into the Stockholders Agreement,
substantially in the form attached as Exhibit F (the "Stockholders Agreement").
5.9 Employment Agreements; Non-Competition and Confidentiality Provisions.
The Company shall have entered (i) into an employment agreement, substantially
in the form attached hereto as Exhibit G with its chief executive officer (the
"Employment Agreement"); and (ii) into employment agreements with management
personnel containing confidentiality and non-competition provisions
substantially similar to those contained in the Employment Agreement.
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5.10 Assignment of Intellectual Property. Robert Thorne, in his individual
capacity, shall have executed assignments relating to (i) that certain U.S.
Patent Application No. 09/553,940, filed on April 21, 2000 by Robert Thorne,
titled "Interactive Entertainment Input/ Output Device, System and Process" and
(ii) that certain Trademark Application No. 75/960,842, to the Company,
substantially in the forms attached hereto as Exhibit H-1 and H-2 respectively,
(each, an "Assignment" and collectively, the "Assignments").
5.11 Documentation Relating to Thorne Loan. The Company shall have
executed a promissory note, substantially in the form attached hereto as Exhibit
I, relating to a certain loan made by Robert Thorne to the Company of
approximately $68,000 (the "Note").
5.12 Delivery of Stock Certificates. At the First Tranche Closing, the
Second Tranche Closing and the Final Tranche Closing, the Company shall have
executed and delivered to each Investor a certificate representing that portion
of the number of shares of Series A Preferred required to be delivered in
connection with such closing.
5.13 Closing Certificates.
(a) Second Tranche. The Company shall issue a Certificate, signed by
the Company's Chief Executive Officer and approved by the Board of Directors of
the Company, certifying that the Company has met the Second Tranche Milestone on
or before February 5, 2000.
(b) Final Tranche. The Company shall issue a Certificate, signed by
the Company's Chief Executive Officer and approved by the Board of Directors of
the Company, certifying that the Company has met the Final Tranche Milestone on
or before April 5, 2001.
6. Conditions of the Company's Obligations at Closing. The obligations of
the Company to each Investor under this Agreement are subject to the fulfillment
by the Investor on or before the First Tranche Closing, the Second Tranche
Closing and the Final Tranche Closing, as the case may be, of each of the
following conditions:
6.1 Representations and Warranties. The representations and warranties of
the Investors contained in Section 3 shall be true on and as of the date of the
First Tranche Closing, the Second Tranche Closing and the Final Tranche Closing,
as the case may be, with the same effect as though such representations and
warranties had been made on and as of the date of each of the First Tranche
Closing, the Second Tranche Closing, and the Final Tranche Closing, as the case
may be.
6.2 Payment of Purchase Price. The Investors shall have delivered their
respective pro rata portions of the purchase price specified in Schedule A
hereto as required at each of the First Tranche Closing, the Second Tranche
Closing and the Final Tranche Closing, respectively.
6.3 Qualifications. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with
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the lawful issuance and sale of the Securities pursuant to this Agreement shall
be duly obtained and effective as of the First Tranche Closing.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations and covenants
of the Company and Investors contained in or made pursuant to this Agreement
shall survive for a period of eighteen (18) months after the Final Tranche
Closing the execution and delivery of this Agreement and each of the First
Tranche Closing, the Second Tranche Closing and the Final Tranche Closing, and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investors or the Company.
7.2 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any Securities). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
7.4 Consent to Jurisdiction. The parties hereby submit to the jurisdiction
of the United States District Court for the Southern District of New York and
any New York State court for purposes of all legal proceedings arising out of or
relating to this agreement. The parties hereby irrevocably waive, to the fullest
extent permitted by applicable law, any objection that they may now or hereafter
have to the laying of venue of any proceeding brought in these courts and any
claim that any proceeding brought in these courts has been brought in an
inconvenient forum.
7.5 Mutual Waiver of Right to Jury Trial. The parties hereby waive all
rights to trial by jury in any action, suit or proceeding brought to enforce or
defend any rights or remedies arising under or in connection with this Agreement
or any act of the parties in respect of this Agreement; in each of the foregoing
cases, whether sounding in contract or tort or otherwise.
7.6 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
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7.8 Notices Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon delivery by
confirmed facsimile transmission or upon deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
7.9 Finders' Fee. Each party represents that it neither is nor will be
obligated for any finders' or brokers' fee, or commission in connection with
this transaction. Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' or brokers' fee (and the costs and expenses of defending against such
liability or asserted liability) for which such Investor or any of its officers,
partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' or
brokers' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.10 Expenses. Irrespective of whether any of the First Tranche Closing,
the Second Tranche Closing or the Final Tranche Closing is effected, the Company
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. Upon the First Tranche
Closing, Second Tranche Closing and Final Tranche Closing, the Company shall pay
all reasonable costs and expenses incurred by Planet Zanett, including but not
limited to, due diligence expenses and legal fees of counsel selected by Planet
Zanett to represent the Investors, which costs and expenses shall not exceed
sixty thousand dollars ($60,000) in the aggregate. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
Investors' Rights Agreement, the Stockholders Agreement or the Restated
Certificate, the prevailing party shall be entitled to reasonable attorneys
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.11 Public Announcements. Unless otherwise mutually agreed by the parties
hereto: (a) no public announcement will be made concerning the financing
transaction embodied by this Agreement and other agreements related hereto, and
(b) neither the Company, its management, employees or any agent thereof will
publicly release, or authorize to be publicly released, any information or
figures pertaining to the Company to any person or entity, including information
about the holders of Series A Preferred or that such persons or entities are
holders of the Company's capital stock.
7.12 Indemnification. In the event the transactions contemplated by this
Agreement are consummated, the Company shall, subject to Section 7.12(b),
indemnify each Investor and the officers, directors, stockholders, members,
partners, employees, agents and Affiliates of each of
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them, in respect of, and hold each of them harmless from and against any and all
losses, liabilities or expenses ("Losses") (whether or not involving a Third
Party Claim (as defined below)) suffered, incurred or sustained by any of them
or to which any of them becomes subject, resulting from, arising out of or
relating to (i) any misrepresentation or breach of warranty or nonfulfillment of
or failure to perform any covenant or agreement on the part of the Company
contained in this Agreement, the Stockholders Agreement or the Investors' Rights
Agreement (including any certificates delivered in connection herewith or
therewith) or (ii) the assertion by any natural person, corporation, general
partnership, limited partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority ("Person") of
any claim against any Person claiming indemnification under any provision of
this Section 7.12(a) (an "Indemnified Party") in connection with the matters or
transactions that are the subject of or contemplated by this Agreement, the
Stockholders Agreement or the Investors' Rights Agreement. The Company shall
reimburse each Indemnified Party (whether or not such Indemnified Party is a
party to this Agreement) for all expenses (including counsel fees and
disbursements) as they are incurred by such Indemnified Party in connection with
investigating and preparing or defending any action, suit, proceeding,
arbitration or governmental or regulatory authority investigation or audit
("Action or Proceeding") (whether or not such Indemnified Party is a formal
party to such Action or Proceeding). If and to the extent that the
indemnification hereunder is finally determined by a court or competent
jurisdiction to be unenforceable, the Company shall make the maximum
contribution to the payment and satisfaction of the indemnified Losses as shall
be permissible under applicable laws.
(a) All claims for indemnification by any Indemnified Party under
Section 7.12 will be asserted and resolved as follows:
(i) In order for an Indemnified Party to be entitled to any
indemnification provided for under Section 7.12 in respect of, arising out of or
involving a claim or demand made by any Person not a party to this Agreement
against the Indemnified Party (a "Third Party Claim"), the Indemnified Party
must deliver a written notification pursuant to this Section 7.12(b) of a Third
Party Claim to which indemnity under Section 7.12(a) is sought by an Indemnified
Party, enclosing a copy of all papers served, if any, on the Indemnified Party
and for the Indemnified Party's claim against any Person against whom a claim
for indemnification is being asserted under any provision of this Rider (the
"Indemnifying Party") under Section 7.12(a) (the "Claim Notice") to the
Indemnifying Party within thirty (30) Business Days, which for the purpose of
this Agreement shall mean a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close,
after receipt by such Indemnified Party of written notice of the Third Party
Claim; provided, however, that failure to give such Claim Notice shall not
affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure.
(ii) If a Third Party Claim is made against an Indemnified
Party, the Indemnifying Party shall be entitled to participate in the defense
thereof and, if it so chooses, to be reasonably satisfactory to the Indemnified
Party. Should the Indemnifying Party so elect to assume the defense of a Third
Party Claim, the Indemnifying Party shall not be liable to the Indemnified
-18-
Party for legal expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, but shall continue to pay for any expenses
of investigation or any Loss, which for the purposes of this Agreement shall
mean any and all damages, fines, fees, penalties, taxes, deficiencies,
diminution in value, losses and expenses, including without limitation,
interest, reasonable expenses of investigation, environmental investigation and
remediation costs, environmental consulting fees, court costs, reasonable fees
and expenses of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment (such
fees and expenses to include without limitation, all fees and expenses,
including, without limitation, fees and expenses of attorneys, incurred in
connection with (i) the investigation or defense of any Third Party Claims or
(ii) asserting or disputing any rights under this Agreement or any agreement or
document executed in connection herewith against any party hereto or otherwise),
suffered. If the Indemnifying Party assumes such defense, the Indemnified Party
shall have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party. If (i) the Indemnifying Party shall not assume the defense
of a Third Party Claim with counsel satisfactory to the Indemnified Party within
five (5) Business Days of receipt of any Claim Notice, or (ii) legal counsel for
the Indemnified Party notifies the Indemnifying Party that there are or may be
legal defenses available to the Indemnified Party or to other Indemnified
Parties which are different from or additional to those available to the
Indemnifying Party, which, if the Indemnified Party and the Indemnifying Party
were to be represented by the same counsel, would constitute a conflict of
interest for such counsel or prejudice prosecution of the defenses available to
such Indemnified Party, or (iii) if the Indemnifying Party shall assume the
defense of a Third Party Claim and fail to diligently prosecute such defense,
then in each such case the Indemnified Party, by notice to the Indemnifying
Party, may employ its own counsel and control the defense of the Third Party
Claim and the Indemnifying Party shall be liable for the reasonable fees,
charges and disbursements of counsel employed by the Indemnified Party; and the
Indemnified Party shall be promptly reimbursed for any such fees, charges and
disbursements, as and when incurred. Whether the Indemnifying Party or the
Indemnified Party controls the defense of any Third Party Claim, the parties
hereto shall cooperate in the defense thereof. Such cooperation shall include in
retention and provision to the counsel of the controlling party of records and
information which are reasonably relevant to such Third Party Claim, and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material discharge a Third Party Claim (other
than any such Third Party Claim in which criminal conduct is alleged) without
the Indemnified Party's consent if such settlement, compromise or discharge (i)
constitutes a complete and unconditional discharge and release of the
Indemnified Party, and (ii) provides for no relief other than the payment of
monetary damages and such monetary damages are paid in full by the Indemnifying
Party.
(iii) In the event any Indemnified Party should have a claim
under Section 7.12(a) against any Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver written notification
pursuant to Section 7.12(b) of a claim for indemnity under this Section 7.12 by
an Indemnified Party, specifying the nature of and basis for such claim,
together with the amount of, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (the "Indemnity Notice") with
reasonable promptness to the Indemnifying Party.
-19-
The failure by any Indemnified Party to give the Indemnity Notice shall not
impair such party's rights hereunder except tot he extent that an Indemnifying
Party demonstrates that it has been materially prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim described in such Indemnity Notice or fails to notify the Indemnified
Party within the period ending thirty (30) calendar days following receipt by an
Indemnifying Party of either a Claim Notice or an Indemnity Notice (the "Dispute
Period") as to whether the Indemnifying Party disputes the claim described in
such Indemnity Notice (the "Dispute Notice"), the Loss in the amount specified
in the Indemnity Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 7.12 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand. If
the Indemnifying Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiations within the period ending thirty (30) calendar days following
receipt by an Indemnifying Party of either a Dispute Notice (the "Resolution
Period"), such dispute shall be resolved by litigation in a court of competent
jurisdiction.
(b) The indemnification obligations of the Company shall be
effective only when the aggregate amount of all Losses by an Indemnified Party,
subject to indemnification hereunder exceeds $50,000 (the "Deductible"), in
which case the Company shall be liable for all Losses. In no event shall the
aggregate amount of indemnity payments by the Company exceed $2,000,000. In no
event shall indemnity be recoverable from the Company with respect to any
individual Loss unless the amount thereof equals at least $10,000 and no Loss in
an amount less than $5,000 shall count toward the Deductible.
7.13 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the Common
Stock issuable or issued upon conversion of the Series A Preferred. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company. Notwithstanding the
foregoing, no amendment or waiver under this Agreement shall materially affect
the terms of the Series A Preferred without the consent of a majority of the
holders of the Series A Preferred.
7.14 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.15 Aggregation of Stock. All shares of the Series A Preferred held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
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7.16 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties, and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants, except as specifically set forth herein or therein.
IN WITNESS WHEREOF, the parties hereto have executed this Series A
Convertible PreferredStock Purchase Agreement effective as of date first above
written.
FANLINK NETWORKS, INC.
By:_________________________________
Name: Robert Thorne
Title: President
Address: 235 South 15th Street
Suite 305
Philadelphia, PA 19102
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[Counterpart Signature Page to Series A Convertible
Preferred Stock Purchase Agreement for Investors]
PLANET ZANETT
CORPORATE INCUBATOR, INC.
By: _____________________________
Name: Claudio Guazzoni
Title: President
Address: Planet Zanett Corporate Incubator, Inc.
c/o The Zanett Group
135 East 57th Street
New York, New York 10022
Attention: Mr. Craig Brumfield
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[Counterpart Signature Page to Series A Convertible
Preferred Stock Purchase Agreement for Investors]
NOLA I, L.L.C.
By: _________________________
Name: Craig Brumfield
Title: Member
Address: NOLA I, LLC
c/o The Zanett Group
135 East 57th Street
New York, NY 10022
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